Once a company is customer-centric, it must be frontline-centric: Zeynep Ton

Zeynep Ton, a professor at MIT Sloan School of Management and co-founder and president of nonprofit Good Jobs Institute

Zeynep Ton is a professor of the Practice in the Operations Management group at MIT Sloan School of Management and co-founder and president of nonprofit Good Jobs Institute. She is the author of The Case for Good Jobs: How Great Companies Bring Dignity, Pay, and Meaning to Everyone’s Work and The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs & Boost Profits. In an interview with Forbes India, she explains how companies can win through good jobs and the virtuous cycle that comes with them. Edited excerpts:

Q. What’s the criticality of ‘good jobs’ in the present business environment?
Attracting and retaining the right talent have always been critical for companies that want to win with their customers. Especially in service sectors, how can a company offer good service without a strong frontline team that’s set up to succeed? How can it adapt to changes related to technology, customer needs, and labour market conditions? Recent trends make good jobs even more critical. Competition is tougher, which means that customers have a lot of options. In many economies, labour markets are tight and the population is ageing. The playbook—pay people as little as possible and operate with high turnover—that worked before may not work in the future.

Q. What’s the intangible value a ‘good job’ can bring?
Stable schedules, clear career paths, and a feeling of respect and dignity are all important ingredients. But let me mention a minimum requirement: Pay needs to be high and stable enough. When pay is so low or inconsistent that people are working multiple jobs, getting very little sleep, stressing about putting food on the table, everything else—little perks, belonging programmes, pizza parties—is just a band-aid on a wound. Low pay hurts workers a lot more than we may think—it’s associated with heart disease, stroke, diabetes, opioid use, and suicide. It even hurts cognitive functioning: Constantly worrying about money problems creates a bandwidth tax that’s equivalent to a 13-point drop in IQ.

So, although pay alone doesn’t drive a good job, absence of sufficient pay guarantees financial stress and high turnover. And once there’s high turnover, the work ends up being designed to ensure that people are treated like a pair of hands, not human beings who have brains.

Q. What are the elements of a good jobs framework?
The good jobs strategy is about winning. What do companies need to win? They need to have a great team. They need to invest in pay and stable schedules. They need to offer career paths and respect. But they also need to position their team for success and design their system for high productivity. And that’s the secret sauce of the Good Job Strategy.

Four operational choices that increase productivity and contribution of employees and set them up for success are: Focus & simplify, standardise & empower, cross-train, and operate with slack. For example, simplify so that employees’ time is not wasted with tedious tasks, standardise but also trust employees to make decisions for customers, give them enough time to do a good job. The outcome of this system is great value for customers, jobs with high pay, respect and dignity, and great returns for shareholders.

Q. What goes into an ideal employee empowerment strategy?
A few years ago, I was teaching a case about Spanish supermarket chain Mercadona. Their frontline employees make a lot of decisions that enable them to increase sales and reduce costs. They manage flow by opening cash registers, they can accept a return without asking a supervisor for help, they can drop the price of tomatoes at the end of a Saturday if they believe too many kilos will go to waste otherwise (stores are closed on Sundays), and they are involved in improvement. Specialists in areas such as produce, bakery, and cosmetics are empowered to order products and talk to customers to understand their needs. Because their employees contribute more, Mercadona can pay them more and still come out ahead. Empowerment also makes the job a better job, which lowers turnover. But a participant raised his hand and said: “We’ve empowered our own employees and lost tens of millions of dollars.”

So why does empowerment work at Mercadona? Low turnover enables them to hire well and invest in training. That means Mercadona can trust its employees to make good decisions. Experienced employees know what they are doing, what their customers need, and how they can help them. Because Mercadona offers fewer products in each category, employees can become knowledgeable about those products and suggest improvement ideas. Other forms of operational simplification (predictable deliveries, no sales promotions, and so on) mean that employees aren’t spending their time and attention on tedious tasks.

The combination of standardisation and simplification reduces mental overload, which further helps employees make the right decisions. Operating with slack means that employees have time to make the right decisions, communicate improvement ideas, and understand customer needs. They aren’t too busy to do a good job. You see, it’s a system.

Also read: 10 Reasons why employees stay in a company

Q. Why are leaders often afraid to bet on people?
Generations of leaders have been taught that labour is just like any other input to production, so cutting labour costs is good business and market pay is the right pay—even when it’s below a living wage. Some have been told by their own team, “We’ve raised wages before, it didn’t pay off.” Some are afraid of looking naïve—paying their workers more than others and getting nothing for it. In October 2015, Walmart’s CEO Doug McMillon announced it would cost them $2.7 billion over two years to raise the pay of frontline workers from the federal minimum wage of $7.25 an hour to $9 in 2015 and $10 in 2016. Walmart’s stock price took a 10 percent hit that day. It didn’t last long, but it must have been demoralising to see investors punish him for doing what he thought was right for the business. So we need to change perceptions.

Leaders who were able to make people investment had strong conviction that the investment would pay off. They wanted to run great companies. They were convinced that it wasn’t possible without a capable and motivated team that can drive value for the customer. These leaders also had faith in frontline workers. Many worked in the frontlines before. They had seen with their own eyes how capable and motivated frontline employees can be if you design a system that enables it. This is one reason why I advise all my MIT MBA students to spend time working in the frontlines.

Q. “Once a company is customer-centric, it must be frontline-centric”. What are the perils when leaders fail to see this?
When I started spending time with leaders who chose the good jobs strategy, I realised how different they think. Their mental model is so different than those who find low wages necessary to compete. To them, great companies win with their customers by constantly improving the value of their products and services. That means, frontline work can’t be mediocre. It has to be great. But if the work has to be great, high turnover and low employee ability are no longer bearable costs. They are unacceptable.

During the last twenty years, I have seen a million ways companies screw up their business when they go cheap on labour. At Good Jobs Institute, we have seen companies changing their entire roster every year. Just the direct cost of replacing those workers—recruiting, training, time to full productivity--often amounts to 10-25 percent of labour budgets. But that’s nothing compared to lost sales from mistakes and poor service, higher costs due to waste, and low productivity. The resulting poor financial performance makes it harder to invest in people, locking the company into a vicious cycle of high turnover and poor performance. In this vicious cycle, companies can still grow their sales and profits by adding more units, more products, more discounts, more services. But all that adding increases complexity and creates an even weaker system.

Q. How relevant is data while effecting a system change?
There’s a place for data analysis in business but using data to identify cause and effects in isolation can be a huge barrier to system change. Many business decisions aren’t determined by inescapable laws of science. They are determined by leaders who have agency to make choices that can radically change the situation. There’s no law that says if you raise pay this much, turnover will drop this much. It matters how you raise pay and what else you do to reduce turnover—good jobs strategy is a system. Meanwhile, historical data only tell you what happened in the past. They won’t help you imagine what can happen in a better system.

During the last seven years, numerous companies made the transition from a low-pay, high-turnover system to the good jobs system. The results for all were big improvements to turnover, productivity, customer satisfaction, and sales. They didn’t just raise pay. They improved employees’ work. And system change like that not only required conviction but also imagination. That type of imagination is not possible if you insist on careful financial analysis of each individual change. That type of analysis is exactly what we teach our MBA students. And that can not only prevent system change but also lead to cutting corners, competitively and ethically.